Co-Ed Naked Call Writing

[DrSpike]

I am choosing to do that because unlike with some other posters I can have a dialogue with I know that it will be futile - you will react with hostility and wont learn anything. You have also suggested there is nothing I can post you don't already know so not sure what use there is in my answering your questions. The best I can do is to suggest we wait and see if I am proved correct.

I also suspect you are being disingenuous and already know the answer to your question, but for what it's worth and hopefully to put this to bed, the answer is already in my responses to you and Dan here - I think it would help you if you read the parts of my posts you are quoting in the proper context, as 'would affect in the same way' rather than 'affect', and in response to Dan's original post rather than in the abstract.

[Kuciwalker]

I am choosing to do that because unlike with some other posters I can have a dialogue with I know that it will be futile - you will react with hostility and wont learn anything. You have also suggested there is nothing I can post you don't already know so not sure what use there is in my answering your questions. The best I can do is to suggest we wait and see if I am proved correct.

you're not a complete idiot, which means this post is deliberately nonsensical as a response to his.

[DrSpike]

Actually it makes perfect sense. And the second part you chose not to quote re-addresses the point, just in case.

[DanS]

Well, it seems like we might not have a proper experiment after all, what with the gov't bailing everybody out by issuing explicit guarantees yesterday.

Even if we can't have a proper experiment, I do gain solace for my argument in the fact that to do such an extraordinary bailout, the gov't must have been freaked out about this being a system-wide problem, rather than a problem mainly of NR's business model.

[DrSpike]

It was always clear that there would be a bailout of some description though Dan (our deposit insurance is much weaker than in the US), and that was (and remains) one factor in my positive predictions.

And the concern behind the bailout isn't actually one of fundamentals, it is partly an equity based intervention (because of our weaker insurance) and partly one of contagion - remember all banks don't have remotely enough cash to cover liabilities, so all it takes is the strong perception that Northern Rock disease will strike elsewhere to make things begin to move that way.

The government guarantee is a sensible move for both reasons, and the first step to ensuring the buck stops here, as per what I've said I think will happen in the longer term. It also paves the way for a takeover as without the guarantee it would be much messier, not to mention slower.

[DanS]

How many times has such an industry-wide bailout been given? When was the last time?

[DrSpike]

Well the present the guarantee covers NR savers (that's the £28 billion figure that has been doing the rounds), but covers other lenders should (through a contagion effect) it become necessary. Of course, by making such an extension in principle it probably renders the need to do so in practice obselete. A pretty smart move. The next logical step would be for Lloyds or someone to step in now that there is clarity.

The whole thing will blow over shortly, and the UK might even get some sensible advances in the deposit insurance system. It's very likely the BoE will use recent events as an 'I told you so'.

[DanS]

Hold on here. You're being more than a little facile. As of yesterday, the guarantee covers all savers, all institutions. There is no difference in your distinction between "in principle" and "in practice."

When was the last time, DrSpike?

[DrSpike]

There is a difference as in Northern Rock's case the guarantee will be utilised, whereas with other lenders it may or may not. And the very existence of the guarantee renders it less likely it will be required. This isn't hair splitting - it's pretty crucial.

As to your second point I don't recall a incident quite like this one since I've been an economist, so it seems fair to call it an unusual event! Still not one I think will cause our housing market to collapse though.

[DanS]

Isn't it true that the gov't made the extraordinary industry-wide guarantee because they were scared of the housing market collapsing in the manner that I described earlier in the thread?

[DrSpike]

I'm on leave from work at the moment so I can only speculate, but the key objectives of the intervention would seem to be reassuring NR customers, preventing contagion and (this is the most speculative) paving the way for a takeover.

To the extent that if this were to spread to other lenders it would likely have significant consequences for the housing market then your statement is correct.

But again, note the difference between a contagion effect and one driven by fundamentals. If all the big lenders looked like Northern Rock I'm not sure there would be a cheque big enough to stave off catastrophe. This is the key to the whole debate really.

[Slaughtermeyer]

Here's a gratuitous investment tip: short Al Gore Democratic nomination contracts on Intrade. You can get a 45 percent annualized return on your investment if he doesn't get the nomination. His daughter said he won't even run. I'm Uss_liberty in the thread.

http://www.tickerforum.org/cgi-ticker/akcs-www?post=7322

[Kuciwalker]

Zero-sum games

[OneFootInTheGrave]

UK housing market will be going down considerably starting in about 6 months from now, because the investors will be scared/have better investments elswhere, and the prices are out of "non owners" reach for a while now... so I think the overdue correction will be coming in shortly.

The government will get involved more, will try to dampen the impact, the rates will go down again, but the fundamentals as wrong as this will eventually cause the bubble to burst. This bubble is primarily fuelled by general lack of new housing and excess "multiple house owner" investment, which will not be enough to sustain the upward trend after a major confidence shake up, which seems to be happening now.

This overall banking credit crunch is just an intro.
If US thinks it's having it bad, wait until the crunch hits UK. IMO Will be worse than late 1980's/ early 1990's despite of the strong economy which will ease/slow the start, but it will only make it into a prolonged and more painful experience for those who keep on thier investmentshoping it will go back to "normal" (that is post y 2000 levels)...

I think that the reason for this correction waiting so long is that it lacked a trigger, and the well performing UK economy just made this illogical purchaser/investor mentality last longer (mentality is the same as with any bubble, think dot com)... but this today looks like the trigger, and in the end sooner the correction happens better it is... if it is going to be hard now, it can only get worse if this unrealistic situation persists for anoter 2-3 years.

The historical average for market prices is about 4x the average salary. Before 1990 crash it peaked about 5x, now it is 6x the average... well perhaps some migh hope we have landed in another "era" where this higher price/salary difference is "normal" but as long as we stay in free market economy my bet is that we will see a correction.

Last time the correction went from 5x the average to 3x the average (total price drop was about 35% and the salaries grew in the meantime) when it hit the bottom mid 1990's... and as usually higher the climb deeper the fall... we might see an even more spectacular adjustment, but I think it will take 5-6 years for this one to hit the bottom despite of big difference (which should speed up the process), as the resistance will be there due to a well performing economy, and the general lack of housing so the better off will pay well for "slowing down" the crash, but they can afford it anyhow ....

Will see of course, but as usual those adjustments eventually happen, and this looks like a really good trigger to shake the confidence which will start the ball visibly rolling in about 6 month from now (after the administrative backlog of the existing purchases clears).

My bet would be that the average which is now 180k will drop down to about 80k when it hits the bottom... so more than a 50% drop and down to slightly below 3x average salary... this would be "normal" turn of events from my POV... so let's see what happens...

[Bugs ****ing Bunny]

You know, if it hadn't been for the stuff about naked co-eds in the title I'd have opened and contributed to this thread days ago. Does this mean I'm a bit gay?